All Your Worth- The Ultimate LifeTime Money Plan, by Elizabeth Warren & Amelia Warren Tyagi is one of the first personal finance books I read and it’s still one of my favorites. My now mother-in-law had it with her on a long weekend at the cabin and I read it there in one sitting. This … Continue reading
All Your Worth- The Ultimate LifeTime Money Plan, by Elizabeth Warren & Amelia Warren Tyagi is one of the first personal finance books I read and it’s still one of my favorites. My now mother-in-law had it with her on a long weekend at the cabin and I read it there in one sitting. This is a classic personal finance book in that it covers the basics of getting your spending in order and then organizing you finances.
When I read this book I was feeling very strapped financially and was immediately drawn to their Balanced Money Formula. This is really the highlight of the book. This framework is used to help you understand where your money is going, tackle your debt, and then build your financial future. Warren and Tyagi start the book by leading you through six steps:
Step One: Count All Your Worth
Here the Balanced Money Formula is introduced as you divide your expenditures into Must-Haves, Wants, and Savings. The authors take you through the reasoning behind the formula and what should be included in each of the categories. The revolutionary concept for me was the idea that you always have room in your budget for Wants. Even if you are trying to be extremely frugal, it is important to leave room for the fun things in life.
Step Two: Escape from the Thinking Traps
Are excuses keeping you from getting your finances in order? This step takes you through the common excuses of, ‘but housing is too expensive’ or, ‘but I have kids’ and helps you face reality. Figure out the triggers and traps that are keeping you from getting your finances in balance and learn to work around them.
Step Three: Count the Dollars, Not the Pennies
If you need to get your finances in order, start by worrying about the big stuff. Cutting your housing costs will get you a lot farther than giving up your morning coffee. This step takes you through the biggest budget items and helps you think of ways to get these costs down. This section covers scenarios where your budget is just a little out of line, but also discusses what to do if you budget need ‘major surgery’.
Step Four: Can’t Afford Fun, Can’t Afford Your Life
This step discusses how to manage the Wants part of your budget. There is room for fun in your budget, but this is also an area where it is easy to go overboard. Therefore, it is important to set limits for your Wants budget and know your personal triggers that send your spending overboard.
Step Five: To Build Your Future, Pay Off Your Past
This step is all about getting your debt. It takes until step five to start paying off your debt because Warren and Tyagi want you to first understand where your money is going. Now it is time to figure out how much debt you have and understand why your life will be better debt-free.
Step Six: Build Your Dreams A Little At A Time
With your debt paid off you can now start thinking about the future. This takes you through the steps of saving $1000, paying off debt, creating a security fund, then start a lifetime of wealth creation. Like some other books, Warren and Tyagi use a 12% return expectation for the stock market which I do not believe is realistic. However, this book is more about getting your spending in order and not an investment book.
In addition to the Six Steps, there are chapters on money in relationships, buying a home, and ‘financial CPR’ or what to do when things get really bad due to a job loss or divorce.
Is this book for you?
If you have ever asked yourself, ‘am I saving enough?’ or, even, ‘am I saving too much?’ All Your Worth is for you. It is also for you if feel like you never have money for fun things or if you need a basic personal finance book to help get your finances in order. If classic budgets with a line item from everything from toiletries to clothes leave you feeling frustrated, the Balanced Money Formula may be the answer for you. Once you have the basics in order you can move on to other books for more on investing and growing your wealth.
Kids change your life in so many ways, big and little. I’ve always been interested interested in personal finance and kept my finances in fairly good order. However, there a 6 key financial moves I’ve made since having kids that I didn’t worry about before they came along. 1. Draft a Will Soon after baby … Continue reading
Kids change your life in so many ways, big and little. I’ve always been interested interested in personal finance and kept my finances in fairly good order. However, there a 6 key financial moves I’ve made since having kids that I didn’t worry about before they came along.
1. Draft a Will
Soon after baby #1 came along, Mr. NTF and I met with an attorney to have a will drawn up. While online software is available for drafting a will, we chose to use an attorney to draft a will. She was able to insure that all state laws were taken into account and we nowonly need to make updates should we have a major change in our net worth or in how we want our assets distributed.
2. Buy Life Insurance
Since having kids Mr. NTF and I both took out term life insurance policies. These policies will help pay off the mortgage, and get our kids through college should something happen to either of us.
3. Start Saving for College
After calculating how much we need to save for our kids, I opened up 529 plans for them. I feel comfortable starting to save for their college educations because we are already fully contributing to our 401ks.
4. Add Daycare to Your Budget
Since having kids we’ve had to update all our budgets to include daycare expenses. This was especially key when calculating how much house we can afford. Our current daycare costs far exceed the cost of our current mortgage! I added the cost of a second daycare expense to our budget a few months ago, even though baby #2 does not start daycare for a couple more months. This way I know we can handle the added expense.
5. Starting Taking Advantage of all FSA Accounts
Mr. NTF has a FSA account through work to help with daycare expenses. We are able to contribute pretax money that then goes to pay for childcare.
6. Start Saving for Big Purchases Early
This is something you should always do. However, as a result of having kids we need to replace one of our cars with a larger vehicle and also move to bigger house in a better school district. Luckily, we anticipated both these purchases ahead of time and have already started saving for both.
Do you have kids on the way? What are your biggest financial worries about having kids? What big financial moves have you had to make since having kids?
So you are thinking about going to business school? I get asked all the time for advice on whether or not someone should go to business school. This is such a personal decision it is hard to give blanket advice on this topic. However, there are a few things you should think through before taking … Continue reading
So you are thinking about going to business school? I get asked all the time for advice on whether or not someone should go to business school. This is such a personal decision it is hard to give blanket advice on this topic. However, there are a few things you should think through before taking the plunge. The framework below can be applied to other grad school decisions as well. However, since I have my MBA I focused this post on business school.
Opportunity cost is the cost of something measured through the value of next best alternative. The cost of business school alone is staggering and has increased a lot since I started less than 10 years ago. I was shocked to see the expected tuition of over $50,000 and total expenses of over $80,000 at Standford and Harvard which means that two years at either of these schools will set you back over $160,000. However, when calculating opportunity cost you must also look at what you are giving up, and in this case it is income. While you will most likely have an internship between your first and second year of business school, you will not have a full time job so you must also take into account the salary you will not be making while in school. If you are currently making $50,000/year business school will cost you $160,000 PLUS $100,000 in unearned income for two years, not taking into account any potential raises. Total cost of business school for two years, $260,000. Nothing to jump into lightly.
The Actual Cost
Business school is expensive and if you take out loans for the full amount you will graduate with monthly student loan payments of over $1,000/month. If you want to be an investment banker that may be ok, provided you can find a job. However, if you want to work a non profit, this may be tough to swing and you will want to have more of your tuition money saved ahead of time.
Can you get in to a top school?
There are many differing opinions on which schools have the best MBA programs, however you tend to see a similar set of names in the top 10, just in different orders. Here is the most recently US News rankings. The value of your MBA starts to decrease as you go down the list. I do not think it makes sense to quit your job and attend business school full time unless you can get into a top program.
Is there a good part time program in your area?
Part time programs can be a great option, particularly if your current employer will help cover some of the cost. This is also a great option if you plan to live in your current city for the foreseeable future. With a part time program your opportunity cost is much lower as you are still working. And if you plan to stay in your current city, you can build a valuable network while in school.
Do you have a concrete reason for wanting to go back to school?
You need to have a concrete idea of what you are trying to get out of business school or it is hard to make the most of your program and you will graduate with a lot less money and may regret the decision. Business school is different from other professional schools such as law or med school in that you do not graduate with a defined career path. You need to define your career path. You will get a lot more out of business school, and have a much easier time getting in, if you know exactly why you are going in the first place. Are you going to switch careers? To broaden your skill set in your current role? Applying to business school because the economy is bad and you do not know what else to do is not a reason. There is no guarantee the economy will improve in the next two years and you lack of direction will make it harder to get a job when you graduate.
There are several things that ended up making business school an easy decision for me. I worked at one company in my time between undergrad and business school. From a functional perspective I knew I was not doing something I wanted to do for the rest of my life, yet the skills I was learning at this job were not obviously transferable to other jobs or industries. My company was very insular and I did not have a strong network of contacts to help me with any potential job hunt, particularly because I new I wanted my next job to be in the United States. This biggest factor that led me to apply to business school is that I love being a student and am a huge believer in spending money on experiences. Finally, since I knew I was going to make a career change at some point, I squirreled away a lot of money in the years before I applied to school. When I finally got my acceptance letter I had saved for a big chunk of the cost business school and the decision to go was easy.
Business school is not for everyone. However, if you go in with your eyes wide open to the cost and job prospects once you get out, you will likely have a great experience that will help you further your career.
*If you want to read about the sobering realities of paying back business school debt check out this blog. Look for an interview with No More Harvard Debt in the upcoming weeks.
*photo by roger4336 via flckr
I’m working on a series of reader profiles and interviews. My hope is that as these interviews go on you will learn a little, recognize someone in a similar situation to yourself, and also realize that even people who are very different can still have similar financial issues and goals. If you are interested in … Continue reading
I’m working on a series of reader profiles and interviews. My hope is that as these interviews go on you will learn a little, recognize someone in a similar situation to yourself, and also realize that even people who are very different can still have similar financial issues and goals. If you are interested in participating, please email me at notrustfund <at> gmail <dot> com If you have any comments for DreamChaser 57, leave them below.
I am a married woman living in the Midwest, we currently rent. We do not have children as of yet. My husband, whose originally from the Southeast, has been in law enforcement for over fifteen years. I recently accomplished a lifelong dream, completing graduate school last year. In order to be professionally licensed, I had to prepare for and pass an ardous test. That process took approximately two months. It took another two months to await the results. I was elated because I passed on the initial try. That elation was short-lived because I am having an incredibly difficult time finding a job in my field. Actually, I am having a hard time finding employment right now period. Our household is usually dual income. I worked while attending school on a part-time basis in the evening in years past. I was laid off at the height of the recession, June 2009. After being laid off, I threw myself completely into my studies. Pouring that energy into my studies, shielded me from the gravity of the lay-off. Severance and unemployment definitely cushioned what would have otherwise been a devastating blow. Now that I’ve exhausted unemployment and the severance package is long since gone the fragility of our finances has been laid bear, most notably and significantly no emergency fund. Our budget is quite lean now since we are depending on one check.
What are your biggest financial challenges and goals right now?
What is the best piece of financial advice you have ever received?
I truly value post-secondary education. Pursuing one can facilitate intellectual growth in untold and unimaginable ways, especially when it comes to critical thinking skills. However, I would caution anyone to remember the job market does not always respond to how much you spent for school or your efforts. Degrees not make careers, tenancity, skills, and effort does. When I initially chosen my graduate school, I examined a lot of different factors including tuition. I just sort of passively accepted that for the field I wanted to go into that going into, high six figures of school loan debt was par for the course. Now in hindsight, I would have diligently searched for the cheapest accredited institution even if that involved moving.
What is your biggest financial extravagance and in what areas are you most frugal?
We do not have a lot of big financial extravagances right now. For the most part, over the course of our relationship, we take the time to invest in date time. We are most frugal with clothes/shoes - neither or us are big shoppers.
What would you do if money were no object?
Everyone needs a budget, but the same type of budget is not right for everyone. I have always had a tough time with the classic budget where you have a monthly allotment for clothes, groceries, housing, and everything else you spend money on. In the same way that I’ll never be a calorie counter I’ll … Continue reading
Everyone needs a budget, but the same type of budget is not right for everyone. I have always had a tough time with the classic budget where you have a monthly allotment for clothes, groceries, housing, and everything else you spend money on. In the same way that I’ll never be a calorie counter I’ll never have a strict budget where I map out where everything is going each month ahead of time. A few years ago I read, All Your Worth, by Elizabeth Warren & Amelia Warren Tyagi. Immediately I was drawn to their Balanced Money Formula. If I feel like I’ve been overspending, I’ll track my spending for a few months, and find that provides me with enough information and motivation to get my spending back in line. However, for big picture spending I turn to the Balanced Money Formula, the only budget that works for me.
The idea of the Balanced Money Formula is that you do not need to itemize your spending every month, you simply look at your monthly income and divide it into 3 categories: Must-Haves, Wants, and Savings. Then you work to have your money allotted as follows, 50% to Must-Haves, 30% to Wants and 20% to Savings. That’s it, nothing more. Sounds easy, but the hard part is actually figuring out what goes into each category, and then making the changes to get things into alignment.
Must-Haves- Some Must-Haves are easy to identify. You must have food and you must have shelter. However, eating out is a lot more expensive than preparing food at home so this is a Want not a Must-Have. And while you could make the argument that you must have a phone, this does not mean you MUST have a land line and a cell phone. Or that if you have a cell phone you must have the big data package. If you go line by line through your spending, you will quickly discover that a lot of things belong in the Wants category rather than Must-Haves.
Wants- Everyone needs a little fun in their life, even when sticking to a budget. This covers anything from eating out to beer you buy to have at home, to vacation money. I like to think of these things as items we would cut out if we were really in financial trouble. So, while we use our internet connection all the time, if it was between that and putting food on the table, we’d cut the internet. And while everyone needs clothing, at this point in my life most of my clothes purchases are Wants, while clothes purchases for our fast-growing kids are Must-Haves although we could find cheaper options in a pinch.
Savings- In a classic sense, this covers savings for retirement and money in your bank account. However, the Balanced Money Formula also includes debt repayment under savings. Only put down credit card debt if you carry a balance each month and you only include the amount that goes to paying down an ongoing balance, not any increases from month to month (the increase would be split between Must-Have and Wants as fit). If you have a lot of debt, this number may even be negative if you are spending more than you earn each month. When you have your Must-Haves and Wants under control, it will be easier to see how to grow your savings.
After you have gone through all of your spending, you can step back and look at the big picture. In an ideal world it would look something like this:
When I first read this book, I felt like I was doing a good job saving, but my money felt really tight at the end of each month. When I went through my budget I quickly figured out why. I was saving enough but my Savings + Must-Haves were taking up almost all of my monthly income. I had no room for the Wants because my Must-Haves were too high. This highlights what I love about this book. You always need room in your budget for things you Want, room for fun money. If you are working on becoming more frugal, it is easy to quickly cut out Wants, but this is not an sustainable solution. Even if you have debt, or need to save some money for a big ticket item, you need to have some room in your budget for fun or the budget will not work in the long term.
Remember this balance is an end goal. It can take months, and even years to finally get your money in balance. It may be as easy as cutting out a few meals out each month and allocating this money to savings, and it may be as hard as having to sell a car or even a home to really bring your money into balance. However, when you finally make the necessary changes you should feel great about where your money is going while still having room for fun in your life.